German arch-rivals Deutsche Bank and Dresdner Bank could squeeze hefty savings from a possible retail banking link-up but such a move would have to lead to a full merger, analysts said yesterday.

Both banks confirmed at the weekend that they had held preliminary discussions on merging their retail banking operations but said they were also looking at other consolidation options within the German retail banking sector.

Analysts said such a merger would make sense in light of mounting pressure on margins in the German retail sector dominated by public savings banks and a heavy overlap between the banks' retail networks.